Bitcoin is an online currency that can be traded between users or used to buy goods and services from merchants who agree to accept it. Unlike traditional currencies, bitcoin isn’t backed by a central government.

The CFPB highlighted the risk of hackers attacking security systems to steal funds, a lack of protections from fraud and massive fluctuations in the price of digital currencies. The agency also said the cost of using virtual currencies can be high, given exchange rates.

Here are five questions and answers about bitcoin and the CFPB. Read More »

Today the Internal Revenue Service issued Notice 2014-21 in an effort to clarify the tax treatment of bitcoin and other virtual currencies before the April 15 tax deadline. The guidance applies to both current and past transactions involving virtual currencies. Here’s a summary of what the IRS said.

How is virtual currency treated for federal tax purposes?

Bitcoin and other virtual currencies are treated as property, not as a currency. Therefore, an investor who buys bitcoin would typically have a capital gain or loss when it’s sold but wouldn’t have foreign-currency gains and losses.

For 2014, the top rate on long-term capital gains is 23.8% for most joint filers with adjusted gross income above $457,600 ($406,750 for singles).

If bitcoin had been ruled a currency, it would have been subject to a complex tax regime in which 60% of profits are considered capital gains and 40% are considered ordinary gains for most taxpayers, according to Jonathan Horn, a certified public accountant practicing in New York.

If a taxpayer receives a payment in virtual currency, is it considered income?

Yes, the fair-market value of the currency (in U.S. dollars) on the date the payment was received is considered to be income. For more information on exchange rates, see the notice. Read More »